Chapter 11R, Problem 3MCQ

To determine

The correct option for given situation where demand curve for perfect competition in short run is required to mention.

Answer to Problem 3MCQ

Option a is correct answer.

Explanation of Solution

Explanation for correct option:

a.

In a perfect competition, demand curve is perfectly elastic in short run as shown below:

  

This is because the demand changes infinitely if price of the products is changed even slightly. In short-run, demand curve is a horizontal line for perfect competition where demand is infinite for the offered price by the firm. Therefore, option a is correct.

Explanation for incorrect options:

b.

As mentioned above, demand curve is perfectly elastic in short-run for perfectly competitive market structure. This is because demand is infinite for given price. Therefore, option b is incorrect.

c.

As shown in the above graph, the demand curve is a horizontal line whereas average total cost curve is downward sloping curve. Therefore, option c is incorrect.

d.

In long run demand curve can be downward sloping where quantity increases as the prices of the product decreases but in short-run it is perfectly elastic curve. Therefore, option d is incorrect.

e.

Demand curve for perfect competition is not a upward sloping curve. Because the quantity demanded is price sensitive in long run which will be reduced if prices are increased. Therefore, option e is incorrect.

Economics Concept Introduction

Introduction: The price taking firms can reduce the cost of production if they produce the correct amount of products. In other words, profit can be maximized if quantity produced is at minimum cost.